re: Latest Updates: Russia-Ukraine Conflict.

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Both of those banks are majority owned by the Russian government.

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Thanks. Yes, that adds clarity. There is no doubt the major banks have been and will continue to be covered by the Russian government, through the Ru Central Bank. The concern is the primary source for these funds, the National Wealth Fund, or Reserve.

Since Putin was so clever as to leave close to $700 billion in overseas investment accounts in the West when he started the war, this Reserve is the terminal source of funding in Russia.

We've discussed the different aspects of this Reserve, liquid / non-liquid, foreign currency, impact of oil sales and gold mining, all of which put most readers into a coma. But the primary concern is that Putin is selling the family silver to keep this war going by withdrawals from this fund.

In addition, the withdrawals are increasing and although the fund is replenished by taxes, oil sales and gold mining, it is still falling rapidly.

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While the fund still provides a buffer against falling oil and gas revenues, analysts warn that it may not last long under current conditions.

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Liquid reserves in the wealth fund have been drawn down from $117 billion in 2021 to $31 billion as of the end of November, Åslund noted.

Yet, according to its 2025 budget, Russia is on track to spend a record $130.5 billion on defense this year.

"The most critical shortage, however, is budget financing, as Russia's last liquid reserves [non-gold] are likely to run out in the fall of 2025," Åslund wrote

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As of June 1, the fund held 2.8 trillion rubles (about $36.4 billion) in liquid assets, its lowest level since 2019. That figure represents a dramatic decline from the prewar peak of $113.5 billion in early 2022. Since then, the fund has shrunk by more than half in ruble terms, and by two-thirds when measured in dollars.

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The strain on the budget comes at a time when Russia’s broader economic indicators are also weakening. Oil and gas revenues fell 10% year-over-year from January to April, and dropped by 34% in May alone.

While the government plans to collect 4 trillion rubles ($52 billion) in business profit taxes this year, corporate profits fell 34% as of March, according to Russia’s state statistics service.

“Falling short of the corporate profit tax target in 2025 is a risk to the Russian budget that is at least as serious — and likely more realistic — than the threat of reduced oil and gas revenues,” he said.

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Although the National Wealth Fund won't have a finite endpoint under Putin, as internal debt will continue to disappear in the musical chairs of Ru government accounting, the external debt is the critical threat. Foreign suppiers of military equipment will only accept payment in non-Ruble currency or gold.

Corporate taxes will have to be increased substantially and even then the Ministry of Finance will only be getting funds devalued by inflation. So the increases must be more than projected inflation, something the government is ironically trying to increase in order to cut their own budgetary and Ru bond payments. This is one of the problems that keep the ministers up at night.

Oil and gas sales have their strengths but the substantial drop in crude pricing and the lower market for Ru gas cannot be worked around by simply adding more vessels.

Ultimately, the gold production will be the last dependable budget strength as it is in complete control of the Kremlin. Much of this production seems to be going to the Chinese now as the Russians are experienced in the unpredictable swings in the value of the Yuan. What they get from the Chinese in Yuan sales take a haircut when going back to cover payments.

Many economists, using current data, are giving date ranges for the final exhaustion of the National Wealth Fund and they cluster in the end 2025 - first half 2026 windows. At that point, Moscow will be forced to offer the Chinese infrastructure in Russia, particularly related to extraction logistics such as ports and rail networks. The Mikolaiv port in occupied Zaporizhzhia has already been contracted to the Chinese, this likely being the first of a number of such deals.

Should be interesting.

All figures sourced from Ru Ministry of Finance although recently this data has been withheld. The Rosstat website (Russian statistical agency) has been down for the second day

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